Recently, the Ministry of Finance has been accelerating the implementation of policies that have already been determined. Focusing on stabilizing growth, expanding domestic demand, and managing risks, a package of targeted incremental policy measures will be rolled out in the near future. Nomura has expressed that the Ministry of Finance's press conference demonstrated the government's sincerity in economic management, but its functions are relatively limited, with many key decisions requiring approval from the National People's Congress or its Standing Committee. The policy announcement this time was basically in line with market expectations, neither significantly exceeding nor falling short of them. The stock market may experience a period of volatility in the future, but there is still potential for upward movement.
Nomura pointed out that there are several important points to pay attention to in this press conference. The first is the issue of local government debt resolution. The scale of debt resolution this time is expected to exceed historical records, possibly involving tens of trillions, including the 5 trillion yuan written off during the pandemic. Second, the issuance of special treasury bonds to replenish bank capital is related to local government debt resolution and is also related to the housing delivery plan. The third highlight is the clear statement that China still has room for fiscal deficits. In addition, infrastructure and transfer payments will be supported through the issuance of ultra-long-term treasury bonds and an increase in special bonds, with this expenditure expected to increase by three to four trillion yuan annually.
Advertisement
The main purpose of local government debt resolution is to convert implicit liabilities into explicit ones, thereby reducing interest costs and default risks. Currently, China's local governments have implicit liabilities of about 50 trillion yuan, plus explicit liabilities of 40 trillion yuan, totaling 90 trillion yuan. The scale of implicit liabilities to be resolved this time is expected to reach tens of trillions of yuan, including the 5 trillion yuan added during the pandemic. This resolution is not a simple economic stimulus but a change in the nature of the original high-interest loans of local governments, making them similar to national treasury bonds, thereby reducing interest costs.
In summary, the policy announcement this time was basically in line with market expectations, neither significantly exceeding nor falling short of them. It is important to be vigilant, as different market participants, due to different positions, may have biased interpretations of the policies. Therefore, opinions from all sides should be integrated to view this press conference and its impact objectively.
Nomura predicts that in the coming years, China's fiscal policy will continue to maintain a proactive stance, supporting economic growth through various means. On the one hand, special treasury bonds will continue to be issued to replenish bank capital, and infrastructure and transfer payments will be supported through ultra-long-term treasury bonds and special bonds. On the other hand, it is expected that an additional expenditure of three to four trillion yuan will be added annually to stabilize the economic growth trajectory.
In addition, the Standing Committee of the National People's Congress holds meetings every two months, adjusting the budget and determining key issues such as the additional quota for national treasury bonds according to the actual situation. Therefore, new fiscal policies will be introduced every two months or so, providing guidance for the market. At the same time, it is important to avoid overly optimistic or pessimistic interpretations of these data, as the actual effects depend on the specific implementation and changes in the macro environment.
Nomura expects that the stock market may experience a period of volatility in the future, but there is still potential for upward movement. The key lies in whether it can cool down excessive speculative enthusiasm and prioritize solving economic problems. If this can be achieved, the Chinese stock market may usher in a "slow bull" market.
Regarding how investors should respond in the current volatile market, Nomura points out that, first of all, as individuals are not stock strategy researchers, they cannot provide specific operational suggestions. However, there are a few points to note: First, the market is currently highly volatile; second, it is important to closely monitor whether the central government's policies can effectively solve the current economic problems. In particular, whether the real estate market can stop falling and stabilize, and the progress of the fiscal system reform.
In the current economic environment, general investors should be particularly cautious. Although the government is committed to stabilizing the economy, stock market, and real estate market through policy coordination in various aspects, investors still need to follow the pace of the national team and look for a certain safety cushion when choosing high-risk stock assets. Specifically, blue-chip stocks with high dividend yields or stable growth prospects can be chosen to reduce the risks brought by market fluctuations.
In addition, regarding China's real estate market, Nomura points out that the real estate market has indeed been booming recently, especially in first-tier and some second-tier cities. However, there is a lot of uncertainty about whether this situation can continue. When policies exit, the market may face adjustment pressure. Both the stock market and the real estate market have cyclical fluctuations.In the years following 2015, real estate prices in small and medium-sized cities skyrocketed through special policies such as monetized shantytown renovation. Nomura believes that it is currently unlikely to adopt similar large-scale stimulus measures again, such as extensive construction of highways, high-speed railways, or a large amount of housing in small and medium-sized cities. These historical stages have passed, and therefore, the real estate market will not experience similar large-scale bubbles in the future.